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At this point you should compare the results we have derived to the macroeconomic principles. Intuitively, a rise in the world interest rate should lead to an increase in capital outflows and a depreciation of the domestic currency. This, in turn, will lead to an increase in net exports and income. The increase in domestic income will cause an increase in money demand, putting upward pressure on domestic interest rates. This result is illustrated graphically in Fig. 8.8 where a rise in world interest rates leads to a rightward shift of the IS curve.

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